Parts of the U.S. bond market are seeing short-dated yields push above their long-dated peers, a “warning sign” for the stock market as Wall Street’s economic expectations for 2019 deteriorate. Jones and others are worried that if this gap continues to narrow, more losses will follow for the S&P 500 (SPX) which has already been retreating from its October highs. “History suggests that once the Treasury yield curve becomes very flat or starts to invert, the stock market tends to struggle over the following couple of years, as the economy eventually starts to weaken,” said Jones.

A popular measure of the yield curve's slope extended its flattening trend Tuesday, nearing an inversion as traders snapped up long-dated bonds. The bond-market rally helped to compress the yield spread between the 2-year note and the 10-year note to around 10 basis points, its flattest since 2007. Bond prices move in the opposite direction of yields. Investors are on the watch for when the short-dated rate rises above its longer-dated counterparts, or inverts. A so-called yield-curve inversion has been a strong predictor of recessions. Another spread between the 3-year note and the 5-year note had already inverted Monday.

The bond market is beginning to sound the alarm of a recession, with an inversion in U.S. Treasury yields occurring on Monday for the first time since 2007. The yield on the 5-year Treasury note fell below the yield on the 3-year note, meaning that investors were being paid more to hold U.S. government debt maturing in three years than comparable bonds maturing in five years. It’s not the major curve inversion that investors watch for — the 2-year note holding a higher yield than the 10-year note, which has preceded every U.S. recession since World War II — but it portends that the market is headed in that direction, analysts told Yahoo Finance.

The dreaded inversion of the yield curve is nigh, but in an oft-ignored section of its slope. “Maybe this is what the Fed fears most,” said David Rosenberg, chief economist for Gluskin Sheff, in a note. If triggered, an inverted curve would set off fears that the U.S.’s second-longest expansion since World War II may buckle under the pressure of the Federal Reserve’s steady but relentless rate hikes.

The U.S. Treasury yield curve steepened Wednesday as bond traders see fewer hikes in the cards after Federal Reserve Chairman Jerome Powell suggested the central bank’s benchmark interest rate may be near to where monetary policy no longer stimulates growth. Investors interpreted his speech in front of the Economic Club of New York as modestly dovish after Powell said the central bank was close to the bottom range of estimates for the neutral rate, which was viewed as U-turn from his previous remarks saying that the central bank was far away from the neutral level. “The door has been clearly pushed open for flexibility around the quarterly hiking cycle pausing (terminating?) sooner than previously expected,” wrote Ian Lyngen, head of U.S. interest-rates strategy at BMO Capital Markets.